Even With Apple Genius, New J.C. Penney Might Be a Tough Sell

by Susan J. Aluise | January 27, 2012 8:32 am

Even With Apple Genius, New J.C. Penney Might Be a Tough Sell

We learned one big truth from the debutante bash J.C. Penney (NYSE:JCP[1]) CEO Ron Johnson threw in New York this week to relaunch the struggling department store brand. The man who dazzled the computer world a decade ago with the Apple (NASDAQ:AAPL[2]) Store still knows how to pull the public’s focus.

But focus — or in the case of style and substance, the lack thereof — might be a problem for the struggling 110-year old retailer that embarked on an extreme makeover a year ago this week. JCP hopes to resurrect its iconic brand[3] with a business model that combines merchandising and pricing ideas from retail rivals Target (NYSE:TGT[4]) and Wal-Mart (NYSE:WMT[5]) with the Apple Store’s vibe and vision.

By blending TGT’s popular budget-priced designer lines with WMT’s everyday low prices and adding in the airy design and service component of the Apple Store, Johnson hopes to revolutionize the department store just as he did retail computer sales a decade ago.

Investors welcomed JCP’s breath of fresh air — shares rose nearly 19%[6] to $41.72 on Thursday, on volume of nearly 47 million shares — vs. daily average volume of about 4 million.

The company will cut costs — and jobs[7] — to the tune of $900 million during the next two years, which Johnson believes will boost the company’s earnings substantially. Thursday’s surge is understandable for a stock that has been on the schneid since 2007, but is up 73% since its 52-week low last August.

Still, success in today’s multi-channel marketplace requires retailers to consistently beat customers’ expectations, deliver on the brand’s promises and create positive “experiences” when and where shoppers want them. While those tasks are doable when the focus is on a line of products (i.e. Apple devices), it’s far more difficult when the focus is on a set of marketing, pricing and merchandising strategies. And J.C. Penney’s kickoff event in Manhattan might have provided an early peek at the challenges the retailer now faces trying to re-invent its brand.

Make no mistake: Johnson and JCP President Michael Francis — recently lured away from Target — put on a great event. The high-energy fête at New York’s Pier 57 was a fusion of Apple Store Fifth Avenue’s tech chic, a Tommy Hilfiger-inspired logo and a diverse sampler of fluffy teen tutu dresses, preppy Izod plaids and Martha Stewart housewares[8]. And that was just the ribbon and wrapping paper.

Inside the new J.C. Penney “box” was the department store chain’s new “blueprint” — a business model that will cut prices by 40% from last year’s levels and eliminate clearance sales. The company’s new “Fair and Square” pricing strategy features three types of prices — “Everyday” low prices, “Month-Long” value prices on select items and “Best Price” closeouts on the first and third Fridays of the month on items JCP wants to move off its floor.

The retailer will spend $80 million a month advertising the new pricing scheme, and TV ads will feature comedian and talk show host Ellen DeGeneres. The blueprint also calls for featuring new budget collections from designers like Nanette Lepore (whose real brand graces the racks at Neiman Marcus) and Mary Kate and Ashley Olsen’s budget “Olsenboye” line. JCP plans to group merchandise into 100 mini-boutiques within each store.

After the makeover, J.C. Penney stores will look a lot like the retail stores Johnson launched while at Apple — including a variation on the tech retailer’s “Genius Bar” concept. But instead of tech support and advice, JCP’s “Town Square” will offer special, seasonal, non-product attractions in the center of each store, like free haircuts or free ice cream.

This low-price, high-style, tech-chic, customer-centered, all-boutiques-to-all-niches identity runs the very real risk of being more three-ring circus than holistic new brand identity.

It’s also a lot of revolutionary change in a very short time.

Last January, JCP killed off its catalog business, shuttered several flagship stores and pared back its home decorating business. By November, Johnson had replaced Myron Ullman, who once headed rival Macy’s (NYSE:M[9]) as CEO. And the new JCP logo is the retailer’s third in three years.

Bottom Line: Ron Johnson might be able to resurrect J.C. Penney’s fortunes, but a “Tar-Mart” strategy where 100 boutiques bloom is a high-stakes wager worthy of the most degenerate of gamblers. If Johnson’s bold strategy fails, the retailer might not have another comeback left in it.

If you’re already long JCP, it’s probably a good idea to hold. But the stock, riding high on hype, is very expensive right now, so I’d wait for the dust to settle — and the new strategy to come into clearer focus — before going all in.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned stocks.